Networking giant Cisco is feeling the weight of a troubled global economy. Yet despite declining net income and net revenues for the second quarter of its fiscal 2009, Cisco CEO John Chambers remains optimistic that he has the right playbook for the recession.
Chambers is also optimistic that his company can emerge from the current recession without major layoffs. Instead Chambers claimed that Cisco (NASDAQ:CSCO) is realigning its workforce to take advantage of opportunities for growth.
For the second quarter of fiscal 2009, Cisco reported net income of $1.5 billion or $0.26 per share, down by 27 percent over the $2.1 billion or 33 cents per share for the second quarter of 2008. Net revenue at Cisco for the quarter hit $9.1 billion a decrease of 7.5 percent on a year over year basis.
The declines in revenue was in line with what Cisco forecast last quarter when Chambers provided guidance that total revenue for Q2 2009 was expected to be down 5 to 10 percent on a year over year basis.
“While year over year comparisons show we are not immune to the challenging economic environment I am very pleased with our continued strong profitability and ongoing cash generation which provides us the flexibly to be agile and differentiate ourselves during this difficult period,” Chambers said during Cisco’s investor conference call Wednesday.
The bigger dip for Cisco however is yet to come.
Chambers provided revenue guidance for Q3 2009 to be down by 15 to 20 percent.
“This is one of the most difficult times in my career in terms of my comfort level with the forecast,” Chambers commented.
Chambers also said at several points during the investor call that it is not his intention to have broad, across the board layoffs at Cisco as a result of the economic downturn.
At the end of the second quarter, Cisco headcount totaled 67,318 which was decease of 329 staffers from the end of the first quarter of 2009.
The plan according to Chambers is to realign and restructure such that a large scale layoff is not necessary. Chambers noted that realignment and restructuring is part of Cisco’s normal business process and isn’t a new thing. That said, Chamber stated that he’s forecast a near term reduction of between 1,500 to 2,000 jobs at Cisco.
“If we are going to do a company wide layoff, we need to do everything possible to avoid that it needs to be of critical mass to justify the loss of business momentum and impact on employees.
“Our definition of a company wide layoff, if we had to do one, would be ten percent of our workforce,” Chambers said. “Let me very specific here, in very direct terms, we are not going to consider a layoff at this point in time.”
Chambers was hopeful that based on Cisco’s current operational structure and the state of the economy that a company wide layoff would not be required.
Opportunity knocks
Though the economy is in a recession, Cisco is seeing some areas of opportunity one of which is the service provider area. Chambers noted that increasing loads on networks carriers will have to continue to invest to meet demand. Chamber sentiment echoed that of rival networking vendor Juniper which last week reported a dim outlook as well, though Juniper CEO Kevin Johnson also reported that carriers have to keep up with demand.
Cisco is also seeing opportunity with Government’s globally that are using economic stimulus packages to help reboot the economy.
“This downturn in my opinion is both the biggest challenge of our lifetime but also represents the biggest opportunity to transform our company as well as our economy through a series of bold steps,” Chambers said. “When consumers aren’t spending and business isn’t spending it’s got to be government. ”
